RIPR is a (paper) newsletter and a weekly column appearing in ten
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Aug 09 (38) - How your government's
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About

The Rhode Island Policy Reporter is an independent news source that
specializes in the technical issues of public policy that matter so
much to all our lives, but that also tend not to be reported very
well or even at all. The publication is owned and operated by Tom
Sgouros, who has written all the text you'll find on this site,
except for the articles with actual bylines.

Responsibility:

Tom Sgouros

Fri, 25 Sep 2009

Last week saw another chapter in the saga of the floating homeless
encampment. First this camp of up to 80 homeless people was Camp
Runamuck under a Rt 195 bridge in Providence. Then they moved to East
Providence. Then, with their numbers dwindled to around 20, to some
commercial land in Providence. Now they're going to have to move from
there, since the land isn't zoned for, um, protest camping.

It's a fascinating story, especially to hear about the camp's success
with experiments in self-government, and there is some dark amusement
available in wondering where they'll pop up next. But the tale of
this doughty band tends to obscure some darker currents going on in
the background.

For one thing, does anyone wonder why these guys are still camping?
Told to leave one spot, they go to another rather than disperse. Told
to leave that one, they still hang together. It all seems a jolly
outing from the news reports, but it's not like the welcome sign is
hanging from our bridges. Our state has homeless shelters, doesn't
it?

Well, we do. But a funny thing has happened due to the foreclosure
crisis and the recession during the past year. That is, our shelters
are mostly full. According to the Coalition for the Homeless, there
are as many people in the shelters this month as there usually are in
mid-winter. And it's still nice outside. What will happen when it
gets cold?

That's easy: The shelters will become overcrowded. I saw a graph
of the numbers of homeless people in the shelter system in Rhode
Island over the past couple of years, and it's been going up so fast
you couldn't even see the usual summertime dip in the count. Last
February saw 43% more homeless clients in shelters than one year
before that, including an increase of 13% in the number of homeless
children.

Many people are homeless because of mental illness or substance abuse
problems. But these are not problems that appear as suddenly as this
wave of newly homeless people has. So what's the story? One way to
explain it is that people have lost their jobs. But this only
explains one side of the problem, and homelessness has two causes.
It's not just people with suddenly less money than they once had.
It's also housing that costs too much.

Put more simply, the issue is that our housing market has not provided
the volume of housing units at low cost that our friends and neighbors
need. The slump has not yet brought prices down significantly. RI
Housing data I saw this week says that most sellers seem to be holding
out for high prices, even though the occasional bargain can be had on
foreclosed property. For many people, it's difficult to find housing
less expensive than the housing they're already in, and so those
people are at serious risk of homelessness when a disaster strikes.

It was not always this way. Fifty years ago, there were
single-room-occupancy (SRO) hotels available for people whose housing
needs were low and means modest. There were also boarding houses and
worker hostels. These weren't always particularly nice places to
stay, but any of them were better than sleeping in the open in
December, and all of them were cheaper than an apartment. But these
forms of housing have mostly gone the way of the telephone booth, and
there is little beside the shelter system to take their place.

Why are these gone? Mostly money. Ultimately, the reason why there
isn't much housing for poor people is that there simply isn't enough
money in it. It's more profitable to rent apartments than it is to
rent single rooms, so there are no more SRO hotels. And it's more
profitable to build condos for the upper end than it is to rent
apartments, so even apartments have become scarcer than they once
were.

The SROs didn't disappear so very long ago, either. There were at
least a couple in downtown Providence through the 1970s, and New York
City was fighting their conversion to apartments well into the 1980s.
(A very small number did survive there and in San Francisco.)

Building codes and labor costs are among the common explanations why
housing costs are so high, but they do little to explain the expense
of housing in structures that weren't built recently, and they do
nothing to explain the disappearance of these alternative forms of
cheap housing.

What does explain this loss is a market whose pressures push
developers to aim at the top of the income spectrum, and planning and
zoning authorities who give in to those pressures far too often.
Gentrifying neighborhoods bring in more property taxes, but at the
expense of SRO hotels and other low-cost housing. And it's not as if
this process is only in our past. As far as I can tell, the hunger
for property tax revenue now drives almost all municipal planning
decisions, so these problems will persist until the rules of the game
are changed.

Markets are wonderful things some of the time, but they simply don't
deliver the social goods unless the prices are right. Housing for
poor people will always be a problem until such a time that the market
changes, or until we decide to change it. Until then, Camp Runamuck
and its successors will always be with us.

Fri, 18 Sep 2009

It was a relief to see last week that the Governor and the state
employee unions have come to an agreement (maybe) about how to achieve the
savings in operations that the Assembly put into the budget in June,
but it's a sign of how far gone things are that the amount in question
was only a small fraction of the likely deficit in our budget.

According to the budget deal signed this spring, the Governor was
supposed to come up with $68 million in savings that hadn't been
specified yet. He chose to take the bulk of that from payment already
promised to city and town governments, and by giving state employees
12 unpaid days off. They objected, and now it seems they'll still
take those days, but there will be the opportunity to get some of it
back in the future.

I'm glad the public employee unions have come to an agreement to
forestall layoffs, but I continue to wonder what other shoes are going
to drop soon. In November we'll have the semi-annual revenue
estimating conference, and knowledgeable people I've spoken to are
working on the assumption that we'll be looking at a deficit in the
hundreds of millions. Again.

What to do about this debacle? How do we get out of the hole we're
in? How about we begin by stopping the digging? The fact is, we're
making the hole deeper even while we wonder how to get out, and that
seems a bad strategy, at least to me. Even now, while the Governor is
withholding $32 million in local aid from cities and towns, we are in
year 4 of a 5-year tax cut aimed at the richest Rhode Island
taxpayers. In other words, official state policy now is dedicated to
the idea that the single worst thing we could do is to stop these tax
cuts.

Is this evidence of serious thought? How sure are you that revoking
those cuts is worse policy than shutting down libraries and cutting
schools? Municipal budgets are (or were) already balanced under
terrible circumstances this spring, with three communities being
forced to exceed the 4.75% property tax limit and 11 more barely
remaining under it. Overall, we're looking at 3.5% increases across
the board. Now those same communities are looking at further cuts.

I was also amused to read about a House hearing this past week to look
at why federal stimulus funds received by the state supposedly haven't
been spent fast enough. As of now, seven months into the program,
only about 8% of the funds have been spent. This isn't good, but
spending highway money isn't the only way to stimulate the economy.
How have we done on others?

Contrary to popular belief, the economics of John Maynard Keynes was
not all about government. He described his own theory as
conservative, sort of saving capitalism from its own excesses. His
big point, the one that gets him remembered, is that investment can't
drive an economy. You won't get investment from investors simply by
providing the money in the form of lower taxes or low interest rates.
You get investment when there are real business opportunities for
investors to invest in. And business opportunities require customers
who want to buy.

Before Keynes, it was thought that we could get out of the Depression
by lowering interest rates, and with tax cuts to wealthy people.
Roughly speaking, that's what Hoover tried. Keynes pointed out that
raising taxes and interest rates could decrease investment, but that
business people aren't dumb, so who is going to start a new business
when no one can buy? In other words, lowering taxes and interest
rates will only work to increase investment if sufficient demand
exists to provide business opportunities. He said that, absent those
opportunities, making investment easier is like "pushing on a string."

For real stimulus, you want to put money in the hands of people who
will spend it. But what have we done along those lines? We're
raising property taxes, which fall heaviest on poor people and in the
middle, and cut taxes on rich people who save most of their income.
We're laying off and cutting the pay of state and municipal employees.
We've hardened welfare rules yet again, making that program even less
useful to poor people.

In other words, at pretty much every choice point, we've taken money
from the people who will spend it -- the opposite of stimulus. Even
if DOT got all the federal stimulus money out without following its
legally-mandated bidding requirements, we'd still be in trouble
because they'd be working against every other lever of government.
The Finance Committee will cast about for scapegoats, but they are
working against the stimulus they claim to support. If they believe
that stimulus is important, let them show it by changing our state's
depressive economic policy.

Wed, 16 Sep 2009

Emmanual Saez has updated his article,
"Striking
it Richer: The Evolution of Top Incomes in the United
States".
Here's his rendition of what's been happening to incomes at the top
end. One interesting thing is the extent to which the benefits of the
past few years have accrued not to the top 10%, but to the top 1%.
The tapayers in the 5th through 10th percentiles haven't done so well
at all.

Mon, 14 Sep 2009

Fri, 11 Sep 2009

Events are changing too fast in our state's budget debacle for a
weekly columnist to keep up, but the Governor's threat of layoffs
brings up a chapter in our history that I wish would get more
attention.

Here in 2009, it's possible to look around the wreckage of our
industrial economy and wonder what happened to all our factories? In
a way, it's pretty obvious, really. Competitive pressures forced many
companies to leave for cheaper wages. We all know that. But what
seldom gets any attention is the extent that this was the result of
conscious policy choices by your governments.

For example, did you know that until the 1980's, it was considered
illegal to close a unionized factory just to move to cheaper labor
costs? A 1981 Supreme Court decision and a 1982 ruling by the
National Labor Relations Board made it clear that reducing labor costs
alone was not enough to justify abrogating a union contract. But time
is capable of eroding judicial decisions as well as rocks, and only a
few years later, Ronald Reagan's new NLRB appointees and new Supreme
Court justices clouded or retracted those decisions, creating
loopholes quite large enough to move factories through.

But, you say, what about the competition from foreign factories where
the labor costs were so much lower? How could a high-cost US factory
compete with the low-cost Asian factories? In return I ask where
those factories found the financing to open in the first place? For
the most part, they were financed by the company moving the
production, either directly, or by using production contracts to
secure financing.

In many cases, American companies would have found little competition
for their products from Asia, even if it was easy for them to move
production there. For example, it beggars belief that a Chinese
company would ever have found independent financing to make a US
soldier doll to compete with Hasbro's G.I. Joe. Who besides Hasbro
would ever have financed something so crazy? China is where they are
made only because Hasbro chose to move production there.

Certainly there are cases where a foreign competitor has prevailed
over an American company. Ask anyone in Detroit, for example. But
does anyone seriously claim that Toyota has surpassed General Motors
as the world's largest car company only because its cars were cheaper?
True, this is a popular claim among union-bashers, but back issues of
Consumer Reports say otherwise.

The other important obstacle to moving production elsewhere was import
restrictions. But the free trade movement of the Bush I and Clinton
years took care of most of those. India and China are much more
prosperous places today than they were 30 years ago, and that's no
small thing, but it wasn't an accident, either.

There's much more, I'm sorry to say. For another example, remember
all the leveraged buyouts of the 1980's? Think of the corporate
carnage as buccaneers like Carl Icahn and T. Boone Pickens bought
companies by mortgaging them to the hilt, and then selling off and
liquidating the pieces? Tens of thousands of people were laid off at
a time in some cases, and the wreckage included many research and
development divisions, corporate futures sacrificed on the altar of
the short-term bottom line.

Corrupt financiers Ivan Boesky and Michael Milken supplied funding for
many of these escapades, but did you know that most of the
transactions were driven by bad tax law? Corporate profits and
dividends were taxable, you see, but if a company uses its revenue to
make debt instead of dividend payments, those are a cost, not a
profit, and thus a way to evade taxes. RJR Nabisco was bought in 1988
for $25 billion, borrowed against the company assets. Servicing this
debt ate up all its profit, which reduced its $682 million 1987 tax
bill to less than zero in 1988. So there were no dividends to
shareholders. The company was still sending out about the same amount
of money to investors, but by calling it "interest" instead of
"dividends" they saved hundreds of millions in taxes. Everyone was
happy, except for the government who got less tax revenue on pretty
much the same business, the 2,300 employees who were promptly laid off
to trim costs, and the crippled Del Monte division, sold off in pieces
to raise cash.

What's the point of dredging all this up? Just this: Rhode Island's
current fiscal crisis is largely one that was chosen for us. Some of
the choices were made in Washington, while others were made on Smith
Hill. A tax policy that raises taxes on people who spend most of
their money and lowers taxes on people who save is a recipe for
recession and that's exactly what our state government has chosen,
time and again. This is hardly all. We've chosen dozens of other
policies that seemed designed to make our economy worse, from
de-funding higher education to extravagant highway investments that
provide only tiny improvements to travel times.

But through it all there is one constant. It seems there will always
be economists, pundits and politicians willing to tell you that our
economic condition is some kind of act of God, that international
competition, deteriorating conditions for manufacturing, and declining
real wages are as inevitable as the tides. Certainly some economic
phenomena are beyond our control, but the events I describe here were
all conscious policy choices. Elections matter, and this is why.

It still rankles -- a lot -- that Osama bin Laden is still
out there. When the attacks happened, and in the days and weeks that
followed, lots of notions flew through my mind, most of them wild and
fanciful or flat-out insane. But it genuinely never occurred to me to
that the main architect of the attacks would still be at large eight
years later.

Once again, what matters is not what politicians say, but what
government does.

Fri, 04 Sep 2009

Each year the Ocean Conservancy
holds its International Coastal Cleanup on the third Saturday in
September. Tens of thousands of volunteers will spend that morning
picking up trash along the shore. In Rhode Island, there are dozens
of cleanups around the Bay and some inland, too (there's one at
Lincoln Woods). There's probably one near you. Last year volunteers
picked up 8,354 plastic bags, 14,490 food containers, and 47,905
cigarette butts and I'm afraid there's plenty more out there.. This
year, the conservancy is highlighting the risks to wildlife of
discarded fishing line, which we find in great profusion (2,718 pieces
picked up last year).

Call the Audubon Society at 949-5454 to find a location where you can
help. Since it's the 21st century and we may as well make the most of
it, you can also go online at signuptocleanup.org where you'll find a
cool Google maps application that will let you find the cleanup
nearest you, or the most scenic. If you're near Wickford, come help
me clean up the harbor -- I'm "captain" there. Please RSVP at the
phone number or web site, so we know how many people to expect.

September is upon us, summer is drawing to a close, and after a
two-month respite, the state budget debacle is about to begin exactly
where it had left off. There are a couple of reasons to be as
discouraged as ever, I'm afraid.

I'm not talking about the Governor's plan to slash still more aid
to cities and towns and force state employees to take furlough days,
and now layoffs. This is a shortsighted and counterproductive
solution to our problems -- and it's appalling to be giving tax cuts
to rich people at the same time -- but it's hardly a surprise. That
is, this was all in the cards as soon as the legislature approved a
budget with $68 million in unspecified cuts last June. What did they
think he was going to do? Scrape off the gold leaf from his office
ceiling and pawn it?

What's more discouraging than this, though, is a report out from the
Rhode Island Public Expenditure Council and the United Way
(summary,
report).
The
report is the product of a commission of academics, business types,
labor and activists that is supposed to be examining the collection of
programs that make up the "safety net." It's not what's in the report
that's discouraging; it's the report itself.

It starts from a good premise: the social services provided by the
state do not constitute a "system" in any sensible meaning of that
word. Poor people who need help have to file multiple applications
for the different kinds of aid for which they're eligible and help is
not continuous as a family's circumstances change. That is, a few
more hours of work a week can make a family ineligible for aid worth
much more than the extra wages. These are real problems that cost the
state real money and have real consequences to families who need help.
They have also been neglected for years, so it's nice to see them
highlighted in a high-profile report.

But after identifying the problem, what to do? The report is, so far
as I can tell, silent. Without that, it is without a point, just a
useful description of the services available, with a collection of odd
factoids about our state's spending on social services. I learned,
for example, that we are first in the nation in the number of eligible
families who don't get food stamps, and that we charge poor people
who share the cost of Medicaid coverage more than any other state in
New England (80% more). I see that the number of poor people getting
cash assistance has been cut in half since 2006 while the number of
unemployed people getting cash assistance has tripled since 2007. Ok,
fine, but so what? Which of these numbers illustrates the problem of
an unsystematic system? Which one shows us a different approach would
be possible? The report doesn't say.

Here's one of those factoids I learned: the state spends 46% of its
budget on social services. This, of course, was the newspaper
headline, and will be the source of the predictable gnashing and
moaning for the coming year. But as I've written before, the 46% of
the state's budget that goes to "Assistance, Grants and Benefits" is
not all social safety net spending, and less than a quarter of it is
state tax money. Still...

Step back a minute, though. Why is so much of the state budget
safety net spending? A huge amount of that is federal money that
passes through the state budget. Food stamps, for example, are
completely funded by the Department of Agriculture. Federal funds
make up much more than half of welfare cash payments, Medicaid, and
child care. But the federal government also spends money here on the
Navy, the Coast Guard, Medicare, Social Security, air traffic control,
and much more and none of that money goes through the state budget.
Why do programs for poor people go through the budget while these
others don't?

The answer is that state control over welfare programs was the price
that conservative southern Democratic congressmen extracted from
Franklin Roosevelt and Harry Truman in exchange for supporting these
new programs. Adam Clayton Powell, then the lone African-American
representative, would routinely propose anti-discrimination riders to
these bills, which would routinely be voted down by northern Democrats who
wanted their bills to be supported by southern Democrats.

So you can be sure we'll be hearing more of that 46% number in the
coming months. But remember that it's little more than a remnant of
an embarrassing time in our nation's history (and the Democratic
party's history). The number itself means very little. When someone
objects to it, ask what they'd do differently, just as I am today
asking the authors of the RIPEC/United Way safety net report.